Economic Outlook: Job creation up next

If Congress wants a jobs bill, it's going to have to go the long way to get one.

There shouldn't be any complaining, either. The long way for job creation, according to the more conservative approach, is the right way to go about it, anyway.

The direct method of creating jobs is to put some money on the table in the form of a stimulus package and, presto, more or less, jobs are created.

It remains to be seen how much Congress is willing to spend when the second half of the budget debate -- the spending half -- comes around.

The tax deal is settled and several taxes are headed higher. Married couples earning $450,000 or more and individuals earning $400,000 or more will see their tax rate climb from 35 percent to 39.6 percent. Taxes on capital gains and dividends will rise from 15 percent to 20 percent. The estate tax will rise from 35 percent to 40 percent on estates valued at $5 million for individuals and $10 million for couples.

In theory, that sets job creation back a bit or slows it down, but not as much as it might appear. Very few jobs are created when individuals inherit capital, because one-time windfalls are not viewed the same as steady income. Likewise, capital gains and income from dividends are seen as too sporadic to support jobs.

There is reason to suspect a higher tax on income will stifle job creation, especially if one imagines an individual with a small business just barely breaking the $400,000 per year income barrier and suddenly that person's taxes go up. If the business in question is sitting on the fence -- to hire or not to hire this year -- higher taxes could be the deciding factor.

But take the same situation, the same individual, and imagine demand for that individual's business increases. There is where the argument rests. It is demand that creates jobs. If demand rises, the decision to hire is ready-made.

Congress will have to wrestle with decisions on additional spending on infrastructure, a choice every business has to make. You have to invest in the business to make money. Similarly, Democrats will argue, you have to invest in America's future to keep the business environment viable.

Extensions of unemployment benefits revolve around the concept of debt. Can the country afford handing out unemployment checks with the deficit still growing? On the other hand, the country can ill-afford to subtract demand from the marketplace and people who are unemployed spend quickly. Their needs are immediate and so is their willingness to spend.

The real long way involves confronting China on currency rates. To create jobs, the imbalance that has created a manufacturing base in Asia and a spending base in more developed economies has to be addressed.

That won't happen overnight.

In international markets the Nikkei 225 index in Japan added 2.82 percent and the Shanghai composite index in China gained 0.35 percent. The Hang Seng index in Hong Kong slipped 0.29 percent and the Sensex in India rose 0.1 percent.

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